Easy Steps To Being An
There are two things that will need to be done to satisfy the state and federal governments when you become an independent consultant and will be receiving a 1099 form from your employer as opposed to a W2 form. All obligations involve filling out appropriate forms and making your own tax payments. These forms are:
Estimated Federal Tax form which needs to be filled out four times a year on the 15th of April, June, September and January. Weird periods I know but don't worry the forms they send are actually a coupon book for payments. This form is called a Form 1040-ES. It may be obtained by calling: (800) 829-3676
- Estimated State Tax form which also needs to be filled out periodically throughout the year. The number to call is different for each state:
| D.C.|| (202) 727-6104
| MD || (800) 638-2937
| VA || (804) 367-8031
Hints for those who are new to being a 1099/self employed individual:
*Information updated January, 2000
- Normally your employer would be deducting your Federal and State tax as well as your half of the Social Security (FICA) payment from your paycheck. Now you will receive your whole (gross) pay on each paycheck. When you pay your estimated taxes you will be paying what would normally have been deducted plus the employers half of the Social Security (FICA) Tax. Normally 7.65% is deducted from your paycheck for FICA until you have been paid $76,200 in one calendar year at which point only 1.45% is deducted. Now you will owe an extra 7.65% (again until $76,200 has been earned as described above).
- Your estimated Federal Tax Form/payment coupon book will take care of paying both your Federal State Tax and your FICA. You may base your estimated yearly income either on your best guess or to avoid penalty use your income from the previous year to make your estimate. If you earned more than $150,000 the previous year you will need to base you estimate on 110% of that W2's figure. Don't worry, the instructions re-hash all of this.
- Social Security tax or FICA is also called Self Employment Tax when you are paying the employer's share too. It is comprised of OASDI (Old Age Survivor's Disability Income) 6.2% and Medicare 1.45%. 6.2% plus 1.45% equals the 7.65% discussed above.
- The number to call to get more information from the IRS on being self employed is: